Food taking bigger budget bite

Friday, August 16, 2013

You may have noticed food prices creeping higher. Officially, the U.S. Consumer Price Index shows inflation at less than 2 percent a year in recent years. But for the past 20 years, the CPI has included only “core CPI,” which excludes prices for energy and food, supposedly because they’re too volatile.

But we still need food and gas. “According to the St. Louis , food inflation was 22 percent between January 2006 and June 2013, while core CPI clocked in at only 15 percent over the same period,” Scott Lincicome wrote Aug. 12 in Investor’s Business Daily; he’s an international trade attorney and a scholar at the libertarian Cato Institute. “This divergence grew following the recession, with food prices (9 percent) far outpacing core CPI (5.9 percent) since late 2009.”

Even worse, in the past five years, prices for meat, poultry, fish and eggs have jumped 16.2 percent. And from 2006-12, a typical family of four paid $2,055 more a year for food. The 2007-09 Great Recession occurred during those years, when millions of Americans lost their jobs or saw their paychecks cut.

When we talked to Lincicome, he blamed the rising prices on three major policies of the federal government. First is the Renewable Fuel Standard, which mandates that up to 10 percent of vehicle fuel must be ethanol, which is derived from corn. The RFS, dating to 2005, was supposed to help meet America’s energy needs.

Since then, a veritable gusher of new oil and natural gas reserves have been discovered in America.

Lincicome told us that diverting corn to ethanol raises prices in several ways. It raises the price of corn itself paid by consumers. And because corn is used as a feed, it raises the cost of beef, chicken and other meats. Farmland is shifted to more corn production, reducing acreage for other crops or farm animals, driving up prices.

The second policy he blamed for the higher prices is, ironically, food subsidies paid for with our tax dollars. “Most of the subsidies actually keep prices higher, for example, by setting price floors,” he said. When the price of a commodity gets too cheap, the subsidy buys up the surplus. Another example is a law dating to the Great Depression that allows the Department of Agriculture to grab 47 percent of the national raisin crop to “hold in reserve.”

The third factor is protectionist laws that limit imports. For example, the USDA dictates the yearly output of sugar, while sharply limiting imports.

Unfortunately, most of the subsidies and market distortions remain in the farm bill Congress is working on. We urge the government to work to end as many of these as possible, as well as to cancel the ethanol mandate. Families need a break.